Abstract

Video streaming has recently become a revenue driver in the home entertainment industry. Whether and how it affects the sales of physical media is unknown. We answer this question using a natural experiment that occurred on October 1, 2015 when content owner Epix switched its streaming partner from Netflix to Hulu. This event created an exogenous shock that significantly reduced the streaming availability of Epix’s content because of the difference in the market shares of the two streaming service providers at the time. This occurrence allows us to investigate the causal effect of streaming services on physical DVD sales. The difference-in-differences analysis shows that the decline in the streaming availability of Epix’s content caused an increase of 29.5% in their monthly DVD sales during the 15 months after the event. Our results validate the industry’s concern that video streaming services displace physical DVD sales, especially in the long term.